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Are You Worth What You Think You’re Worth?

I’m sure we are one of the ugly ducklings in the personal finance hemisphere. As many know to the penny how much their net worth will be. And we? Well, that’s a long story.

Three years ago we set out on an adventure and started investing. Our goal was to accumulate a 100.000 euro net worth within five years, starting from zero. Ambitious, yes. Daunting, yes. Impossible? No.

Although this was our very first financial goal, and the one on which we started our journey with, we never made work of tracking the progress. We never even knew when we reached this point. Because as it turns out, we already did.

Tracking your net worth is like a doctors appointment. Where you check out your financial health instead of you’re physical or mental for that matter. Without a positive net worth, financially speaking, you’re not in a very good shape.

A lot of negative net worth has to do with student loans and mortgages, which might not cause much harm other than saving money has become more difficult. Some other forms of debt are causing bigger issues, risks, and problems where getting rid of it is a real challenge.

But they all have one thing in common. In order to become financially sound, you only have to create one new habit: making sure that more money is coming in than going out. Keep what is left over and start investing what you save. Sounds simple, doesn’t always work that way.

Growing your net worth could be the best thing to focus on. Especially if getting out of debt is your point of focus. As it will help you get to a point where reaching financial independence becomes a real thing.

But when you let debt be an integral part of your portfolio, which is the case with real estate investing. How do you know which amount to target? In this case, a net worth isn’t going to give a very complete insight into your financial well-being.

Additionally, living in a country where wealth tax is laying around the corner, having a low(er) net worth would save up a mass of unpaid taxes every year. Which is also one of the reasons why real estate investing in the Netherlands is so interesting.

Is net worth really the most important factor to measure?

In our case, it isn’t.

For you to know how much we are worth isn’t of any value. Additionally, the internet never forgets. So, we decided to keep our number to ourselves. I can tell you we crossed the 6 digit mark somewhere at the end of last year. But truly, I don’t even know when it happened.

We only started tracking since last month, and we are already passed that point.

The value of financial independence shouldn’t be measured on one’s net worth.

Especially because there isn’t one way to measure it. Do I take into account our own home? Our rentals? Our car? Every possession we have, or just a few. The ones that actually matter, or the ones that provide a cash flow?

Yes, it’s an important metric in order to check up on your financial health. And you should take it with you one your journey to financial independence. At the same time, take a look at the broader picture, your personal style of how you want to achieve financial independence and how your investments are build up.

What’s your number?

One of the common goals to strive for is a certain number. The number stands for the amount of money you need to build up in order to get enough ‘income’ or reduction from it that you can provide your lifestyle as is without having to work any longer. This method leans on the concept of the 4% rule. Where it’s important to gather a big enough nest egg to withdraw 4% yearly, and where the wealth will last for the remainders of your life.

That’s one way of doing it.

The biggest upside is, that once you reach your number. You will probably never have to work again, ever.

We don’t have any target number.

We have a mass of debt but still manage a positive net worth. Which is mostly the case when you invest in real estate.

This also means that the majority of our net worth is in bricks, it’s not very liquid. There are two ways to convert our portfolio to cash, sell a property or make use of refinancing. Both are still not favorable if you rely on the 4% rule, as it takes a lot of time to set it up.

So instead, we focus on cash flow to fuel our FI engine. In a sense, our worth isn’t linked to the value of our assets, but to the way we let our money work for us. The smarter our investments, the more value it will give us in return.

Having a high net worth will have no effect on anything we do. Having a high cash flow will make all the difference.